February 2017 Lumber and Commodity Report

dpc HouseFramed 66304523web


by Don Magruder, CEO of RoMac Building Supply

If you have never experienced sticker shock in your life—prepare yourself. The Ro-Mac Lumber Wood Commodity Index for February 2017 soared an unimaginable $47.81 per thousand to $381.91, which is a whopping 14.3 percent increase. Nothing in the Index went down, and these numbers reflect raw costs from the wholesale level (they do not include freight).

This is what I feared in January when I wrote the following, after the markets drifted lower in mid-January:

“The year is set up for volatility and builders should pay close attention. Prices today will probably be far different in April. Builders should protect themselves with a price escalation clause in their contracts. Keep an eye on spruce quality as better grades may be harder to find. Good planning in January can ensure profits in May.”

The increases in the dimensional lumber portion of the Index rival some of the worst areas during the boom after Hurricane Katrina. The total dimensional lumber portion of the index was up 18.2 percent. In one month, 2×4 #2 Western Spruce jumped 22.4 percent for 2×4-16 and 30.4 percent for 2×4-10. Astoundingly, 2×6 spruce was no better as both 2×6-10 and 16 foot lengths jumped almost 30 percent. These increases make it impossible for anyone in the supply chain to honor prices. Plus some of the better spruce mills are off the market. Wide-with pine hovered in the 15 percent increase range. The fear of counter-vailing duties and a pickup in housing starts in the United States is creating a tough buying market.

The sheathing portion of the Index looked better, but it was still bad, adding 10.6% overall. OSB sheathings added $30 per thousand plus, or almost a $1 per sheet, while CDX pine increased from $30 per thousand for 15/32” CDX to $70 per thousand for 19/32” and $85 per thousand for 3/4” T&G. A $70 per thousand increase on 5/8” CDX is an additional $2 per sheet. These are brutal increases.

The market remains very active and little clarity on the trade policy has been established by the United States government. There is a lot of turmoil.

My hope is that a warmer winter up North is creating a premature spike in demand that will calm down as we go through April. This scenario has happened for several years. However, if demand and a large infrastructure spending bill is adopted in the United States, this year could be different.

Builders should protect themselves with a price escalation clause and keep in close contact with their suppliers. My fear is a lot of people are about to lose money on projects and many do not have the financial wherewithal to do this. Be very cautious in long-term bidding.

Don Magruder is the Chief Executive Officer of Ro-Mac Lumber & Supply, Inc. in Central Florida (romacfl.com), and he is a former President of the Southeast Mississippi Home Builders Association, and past Associate Vice President of the Home Builders Association of Lake County. To contact Magruder, email him at don.magruder@romaclumber.com.